Deferred income — also called deferred revenue or unearned revenue — is money a company has received but has not yet earned. It is recorded as a liability because the company still owes the customer something.
For example, a software company that sells an annual subscription for $1,200 upfront records the full amount as deferred income. Each month, $100 is moved from deferred income to earned revenue as the service is delivered.
This concept ensures that revenue is recognized only when the service is actually provided, following the accrual basis of accounting.